The Organisation for Economic Cooperation and Development (OECD) has raised its projections for global economic growth in 2023 but has scaled back its expectations for 2024 due to rising interest rates putting pressure on economic activities.

As reported by Bloomberg on Wednesday, September 20, 2023, in its latest report, OECD anticipates a slowdown in global economic growth to 3 percent this year from 3.3 percent in 2022, which is higher than the previous projection of 2.7 percent.

However, OECD has reduced its growth projections for 2024 to 2.7 percent from the earlier estimate of 2.9 percent. Except for the year 2020 when the Covid-19 pandemic struck, this outlook would mark the weakest performance since the global financial crisis.

"As high inflation continues to persist, the world economy remains in a challenging position. We face a dual challenge of inflation and low growth," said OECD Chief Economist Clare Lombardelli, as quoted by Bloomberg on Wednesday, September 20, 2023.

OECD warns that the risks in its projections lean towards the negative side, as past interest rate hikes may have a stronger impact than anticipated, and inflation may persist, necessitating further monetary tightening.

The latest OECD report highlights the weakening of the Chinese economy as the "primary risk" to global output.

"After a stronger-than-expected start in 2023, supported by lower energy prices and the reopening of China, global growth is expected to slow down," says OECD.

OECD continues to explain that the effects of monetary policy tightening are becoming more apparent, business and consumer confidence has declined, and the economic rebound in China has lost momentum.

These bleak prospects will test central bank governors worldwide as the effects of their ongoing battle against inflation continue to spill over into economies, with policymakers concerned that activity is slowing down.

The European Central Bank (ECB) raised its benchmark interest rate for the 10th consecutive month last week, although it hinted that the peak may have been reached. The Federal Reserve is expected to hold interest rates steady on Wednesday.

OECD warns central banks against easing policies, as core inflation continues to persist in many countries even as headline inflation figures decline.

"There is limited room for interest rate cuts well into 2024. Monetary policy must remain tight until there are clear signs that underlying inflation pressures have subsided," said OECD.

Lombardelli pointed out that a 25 percent increase in oil prices since May has also driven up inflation in some countries, depending on their exposure and whether they are fossil fuel importers or exporters.

"Oil prices are likely to remain volatile during this period. That's why we have highlighted it as one of the risks. The impact is evident, as we have learned, in household budgets and demand," she added.

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